In the wake of the Netflix (NASDAQ:NFLX) debacle, US equities traded flat overnight; Netflix was less than 1% in the S&P 500.
The beige book release was non-alarmist, cushioning some extreme growth fears. Still, no one was willing to call an all-clear, despite signs that investors were acclimatizing to the constant headline discomfort as a bid returns to the US bond markets. Softer bond yields typically provide buoyancy to stocks.
Oil prices were still lower, a soothing balm for EU stocks. Europe traded extraordinarily strong with Tech, Banks, and Industrials outperforming, while Resources Energy lagged on the pullback in metals and oil.
The narrative for retail investors to sell ahead of Tax Day (Apr. 18) was played to perfection. Retail investors were net sellers Apr. 4-13 before turning small to buy over the past two days.
It was not surprising to see the reversal in equity markets on Tuesday as investors followed that playbook. While the relief rally was expected, the magnitude was not. Nevertheless, it was too early to call for a shift in retail sentiment.
Oil
Concern about the demand implications of the Chinese response to an ongoing surge in COVID infections and the anticipated impact of a globally coordinated 240Mb SPR release continued to tame any oil market rally.
Oil was still trading mixed after Tuesday's sharp pullback but opened in Asia near the midpoint of yesterday's trading range—the lean US inventory draws were helpful. Still, there was not much incremental news overnight, with a trajectory from here really hinging on whether other nations join the UK/US in banning Russian oil imports.
IMF forecasts were no more accurate than those of other economists and may be less accurate. But this was all part and parcel of an ongoing chorus of concerns about growth.
The market now thinks growth risks were higher than inflation risks, and central banks were tightening; hence oil was struggling as growth concerns shifted higher and some overextended inflation hedges unwind.
Gold
Gold, unsurprisingly, was off overnight night lows as nothing had changed on the Ukraine war front.
While it was still too early to say this was a "healthy" clear-out and a fantastic opportunity to buy the dip, dip buyers can take a high degree of comfort at the US 10-year slip, dragging the dollar lower for the ride and supporting gold.
With gold traders eying the May 9 Victory Day holiday in Russia, the gold market stayed bid. Many were expecting a significant surge in the conflict around this time—there was increasing pressure on Russia to turn the tide in the war around this important holiday.
We should expect more sanctions to be announced by Allies in the coming days, which should be favorable for gold via the supply chain and inflation channels.
Forex
JPY
Much of the FX market attention was focused on today's (MoF) Suzuki – Yellen meeting, where "currency coordination" will be on the agenda.
But I was skeptical that anything like a coordinated intervention would occur as the US does not necessarily mind a strong US dollar at this point, not to mention the JPY was weak due to BoJ policy.
Hence, any sort of FX intervention—verbal or otherwise—would be unlikely to be effective unless and until the BoJ gives up on YCC.
But the fact that Yellen and Suzuki were having these discussions suggested that where there is smoke, there's fire.
The BoJ has become the critical driver of the yen, not the Fed. Either JGB yields will have to go up, or the JPY stays weak: Japan cannot have its cake and eat it too.
So, to ward off a domestic purchasing power crunch, there was a 50 % chance this upcoming BoJ meeting could address the ongoing JPY depreciation.
And while I think it will be a keen topic of discussion, I do believe the BoJ will wait until after the June FOMC to start reducing the target maturity on its YCC.